MFIN is the industry association of micro lenders. As per RBI guidelines, microfinance institutions have to make provisioning for the overdue by March 31 next year.

"So we will have to find solution. If the MFI sector has to be alive then RBI, the AP government and the central government have to find a solution for this Rs 7,000 crore outstanding in AP," he added.

Mahajan said the outstanding loans, if not restructured, may continue to keep 92 lakh borrowers in the state in the defaulters list which may be deterrent for them to have postpaid services such as bank loans, water connectivity and electricity in future.

"Think about the 92 lakh borrowers which are all today in the defaulters list. They are not going to get single bank loan by any NBFC or any MFI. The day might come when they don't get even gas connection, electricity and water anything which is postpaid," he said.

The AP Microfinance Ordinance was implemented on October 15, 2010, and subsequently made that into an Act in the wake of a spate of suicides by borrowers allegedly due to the coercive recovery practices by the MFI agents in the state.

The legislation clipped the wings of all MFIs, including curtailing their activities, and subsequently the outstanding from the state has mounted to Rs 7,000 crore, he said.

Mahajan said they have already given a proposal to the AP government to restructure microfinance loans in a convenient way for the borrowers.

He said the normalcy in the state can be restored by permitting the MFIs to give fresh loans while collecting old dues.

According to him, MFIN has also requested the RBI to lift cap on the interest rate being charged to borrowers as banks lending rate are increased.

As per RBI rules MFIs interest rates should not exceed 26 per cent.

Mahajan said as banks are now charging 16 per cent interest rates and MFIs operations become difficult within 26 per cent bracket.

"So we requested the RBI to retain the margin cap. Don't retain the pricing cap. If tomorrow interest rate goes up to 18 per cent then it become a problem for us. Or you (RBI) put interest cap on banks also," Mahajan said while expressing apprehensions on margins.

MFIN also requested the central bank to consider using MFIs infrastructure for banking correspondent model.